Ezra to record a measly 3% jump in core net profit

As adverse weather conditions slow project execution.

According to CIMB, Ezra will report its 2Q13 results on 12 Apr. It expects a flat qoq revenue of US$280m and a 3% qoq rise in core net profit of S$7m in 2Q13 as we think adverse weather in the North Sea during the winter months could continue to slow project execution. 

Here's more:

Withholding tax in 2Q13 could remain high (1Q13 tax rate: 43%). Ezra’s share price reacted negatively seven times out of the past consecutive eight quarters since 2Q11 due to earnings letdown.

Hopes of a stronger pick-up in 2H11 and 2H12 also failed to materialise, no thanks to negative surprises including weak offshore margins, continued losses in subsea segment and high withholding taxes.

We think history could repeat itself in FY13 (management expects a stronger 2H13) on lumpy taxes,muted offshore margins (24-25%) and slower-than-expected margin expansion in subsea segment.

We lower our subsea gross margins to 16%-19% for FY13-15 (previously 20-21%) as we think Ezra could face execution pressure. Stiff competition from the big boys (Subsea 7, Technip and Saipem) could also cap margin expansion for new projects.

We cut our subsea order win for FY14-15 by 10-13% to US$1.2bn and US$1.3bn (from US$1.35bn and US$1.5bn) but keep our FY13 order at US$900m. 

Ezra won about US$650m of orders since Sep 2012. Hence, our FY13-15 EPS are reduced by 24-38%. The shortage of experienced subsea personnel could also hinder Ezra in winning sizeable and good projects to build up its track record and attract good engineers.

Subsea 7 and Technip have listed staffing as the industry’s key challenge in the near term.